Banks to dole out compensation to homeowners

A "for sale" sign stands outside a new home with a reduced price in Des Plaines, Ill. This settlement over foreclosure abuse practices might just be the tip of the iceberg in trying to fix the nation's housing market. - Tim Boyle/Getty Images

David Brancaccio:The way the states see it, banks played fast and loose in processing the wave of foreclosures that hit when the housing bubble burst. Today, federal officials confirmed the remedy: a $25 billion settlement between the five largest banks in the land and every state except Oklahoma.

Marketplace's David Gura has the latest from Washington.

David Gura: Four million Americans have been through foreclosure since 2007, and for a fraction of them -- for 750,000 victims of foreclosure fraud -- today’s announcement is good news.

For about $1,800. It’s compensation from the banks for being sloppy during the foreclosure process. David Reiss is a professor at Brooklyn Law School. He says that’s really just a drop in the bucket.

David Reiss: It seems like small recompense for what happened.

Bank analyst Bert Ely agrees:

BertEly: I mean, maybe that covered the cost of their moving expenses.

You see, according to Ely, today’s settlement only deals with part of the housing crisis.

Ely: It doesn’t begin to address the underlying causes of the sub-prime lending and the housing bubble that came along a couple of years ago, and has now burst with very painful consequences.

The deal does try to prevent more damage. About a million homeowners who weren’t foreclosed on will be able to get better terms on their mortgages. Some of them, who have homes that are underwater -- homes that are worth less than their original mortgages, could get a break to save them money.

Anthony Sanders, at George Mason University, says today’s settlement doesn’t mark the end of this mortgage mess.

Sanders: Very simply, this is going to go on and on and on. It’s a political issue.

The settlement doesn’t rule out future lawsuits, and the states’ attorneys general say they plan to go after more banks soon.